Il Caos
Italy Plunged Into Crisis After Introducing Universal Basic Income
Major financial-market indices in Italy plunged Friday morning after the country’s cantankerous populist coalition succeeded in pushing through a big-spending budget that includes a €780 (about $900) per month universal basic income for Italian citizens. The debt-ridden country will pay for the pledges by increasing its debt further; the new budget projects a deficit of 2.4 percent of GDP, far higher than the European Union’s 2 percent requirement. There are fears that the chaos surrounding the budget could lead to the downfall of the government.
Potentially good policy in the hands of a bad administration in suboptimal circumstances is the death of potentially good policy.
This likely has some significant EU ramifications, as well.
Implementing UBI is like swimming in cold water. And every place I’ve seen try it so far has either waded in a little bit and decided it was too cold, or jumped in with abandon and come streaking out of the water in need of a warm blanket.
Nobody, it seems, has bothered putting on an insulted dry suit before getting in the water.Report
What does that dry suit look like with respect to UBI implementation?Report
Brother JamesK is probably better suited to answer that question, but I’d say, at a minimum, you need to not be carrying enough debt that your Treasury Bonds are barely above junk status (to be fair to Italy, they are seen as stable, but trending negative), you need to have a roll-out plan, you need to have a stable tax base, you need to be prepared to shut down other welfare programs in exchange.
Etc.
Implementing a UBI isn’t just tacking on another entitlement, it’s completely revamping the welfare system of a nation.Report
Italy in particular has a problem that they have to run a consistently large surplus in taxation versus spending for the past 30 years or so to deal with the absurd amount of debt they accrued in the 70s and 80s.
Most countries would have grown their way out of the problem by now, but they have the triple problem of extemely low birth rate, low immigration rate and low productivity growth. They also can’t inflate their debt away because they’re a Euro country.
In short Italy is about the worst place to experiment with a social policy with expensive start up costs. They simply don’t have the fiscal space and need to tackle their fundamental problems with low GDP growth tied to high debt before trying something like this.Report
Maybe those of us who like the idea of a UBI (I count myself among them) will have to decide on a “next best” policy, something that gets us in that general direction even if it doesn’t get us quite there.Report
Figuring out how to pay for a UBI is the hardest part of implementing one. Any government that tries it without solving that problem first is going to have a bad time.Report
This is the problem with government action in general. Other than tax cuts, which always pay for themselves.Report
Some policies are complex – the tricky thing about them is getting a bunch of operational details right. UBIs are not that kind of policy – they are simple, but expensive.
I bring this up because I’m a fan of UBIs, and would like to see them tested in real world conditions. But for those tests to be useful, I need the governments running the tests to be at least semi-competent.Report
Something smells fishy here. Maybe a mental failure on my part.
Neither the Reuters Article referenced from Daily Beast or a Guardian Article I found reference UBI.
Also, I am having math trouble. ~$900/mo/citizen * 12mo * 59M citizen = ~$640B. Italy’s GDP is about $1,800B. So, suddenly 1/3rd of GDP is going to this program? And debt is only 2.4% of GDP. They either raised taxes massively, eviscerated other programs, or both.
I suspect the Daily Best has something very wrong.Report
Misplaced decimal point perhaps. This sentence:
Doesn’t make much sense – 2.4% isn’t “much higher” than 2%. But if it was 24% instead?Report
That story (blurb really) doesn’t seem very well reported. From what I find other places, there isn’t a universal basic income but a minimum income scheme targeted at poor households.
And the minimum income isn’t what has markets worried; it’s the fact that the Italian government is taking an expansionary fiscal framework while also having debt of >130% of GDP. The minimum income is only part of the package, which include tax cuts and not raising the retirement age as had been planned.
Also, the 2.4% deficit is important because it would be in breach of the deal that Italy made with the EU to reduce the deficit under what’s called the preventative arm as part of its “excessive deficit procedures.” This will likely come with some kind of warning, but it’s not until the deficit breaches 3% that the EU contemplates taking more serious punitive actions.Report